Norva24 Group AB (Publ)

Good morning and welcome to the presentation of the Q2 report of Norrva24. I hope everybody has had a fantastic summer so far. My name is Henrik Norrbom and I'm the CEO. With me on stage I have our CFO, Stein Ynderstad. Before we start jumping into the Q2 report, I would once again like to take the opportunity to share my reflections on the Norva24 case. We start from the left. This is a market that has experienced and will experience robust growth for many, many years to come. The underlying trends show strong growth due to some key drivers. The infrastructure where we are present in is critical, is old and has a huge investment debt. Climate changes are putting the system under severe pressure, which will require more preventive maintenance going forward. For example, the cleanup after heavy rainfalls. We have all seen the flooded streets when extreme rainfall hits. And we also saw this on the Olympics in Paris, where heavy rainfall causes sewage to go into the river and competitions being postponed for this reason. We recently also have had similar situations in Oslo and Stockholm where the sea was polluted by sewage and was recommended not to swim in for a period. This is all related to the huge investment depth in the infrastructure. Going forward, the market is huge and far from consolidated. The market we are currently serving is estimated to be close to 40 billion NOC. That means that we have a market share of less than 10%, but are still the clear market leader in Northern Europe. We are operating in a large and acyclical growth market with proven resilience throughout downturns. Last team to the right, we have shown that we have a proven model for growth and value creation. So far this year, we have signed a handful of acquisitions, adding close to 400 million NOC of annual revenues, and we still have a solid pipeline. Before going into the Q2 numbers, I want to present a slide with our key priorities going forward, the same priorities as we had in our last earnings call. We continue to work with the price component in combination with proactive cost handling. High focus on improved utilization, maximize utilization of vehicles and personnel. Improve underperforming units. Work in a structured way to lift them up to the right profitability levels and make sure that we have the right people in the right place. and focus on growth, both organic and through M&A. These are four important areas going forward. In addition, also high focus on our agenda is on capital allocation and working capital. Okay, now on to the group numbers and the highlights. We continue the growth journey and we are proud to be able to present five acquisitions from the turn of the year, which lift our turnover by 380 million NOK with a strengthened margin. Included in the 380 million NOK, we have Vitek with more than 120 million NOK of revenue. We expect to close Vitek during Q2, but the process has taken more time due to the competition authorities having looked into this transaction. Tuesday, we were told that the Norwegian Competition Authority will continue its review of the acquisition of Vitek. In Q2, we have announced three acquisitions, Nordic Power Group, Vitek and Högtryckstjänst Syd. Two of these were closed during the quarter. Finding the right targets and closing the right deal is important for us. And we are in no rush and take the time we need. And there is still a lot going on behind the scenes. We are satisfied with the quarter, with a growth of 17.3%, with approximately 2.6% more working days in the quarter. As Easter in Q1 this year, while it was Q2 last year. If we look at the first half of the year, this effect is neutralized, and then we have a growth of 13.5%. Currency-adjusted organic growth is 9.2 in the quarter and 5.6% for the first half of the year. Year-to-date, we have 1% fewer working days than in 2023, and our organic growth is approximately where we have indicated that the long-term trend should be. Looking at operational highlights, the margin in the quarter is up for the three Nordic countries compared with Q2 2023. But it might be more useful to compare the first six months given Easter coming in Q2 last year and in Q1 this year. In this period, we had a 50 basis points improvement. In Germany, we have a unit that unfortunately has underperformed throughout 2024, and this is what has dragged us down, dragged down the margin in Germany. I'll address this further under the slide on Germany. Sweden is picking up speed and the margin improvement is broad-based, but I'm very happy to see the unit which dragged down the margin last year is now up to good growth and much stronger margins. Denmark is continuing the organic margin improvement and benefiting from Nordic Power Group being consolidated for 40 days in the quarter. Now, let's go through the segments. Starting with Norway, overall, the growth is impacted by the number of working days. In Norway, we had 3% more working days in the quarter and 15.3% organic revenue growth. For the first half year, organic growth was 8.6%, which we think is a good growth level. On profitability, we see a 220 basis point improvement in the quarter. We have signed two M&A transactions in Norway. This year, Vitek is the largest, potentially adding more than 120 million of revenue. Next one, Germany. Germany achieving 5.2% total growth and an adjusted beta margin of 11.3, a margin reduction of 190 basis points over the quarter. This is a disappointing result, but it does not give the right impression of the development in the German operation. We have one unit that has underperformed in both Q1 and Q2, and this is the unit where we announced we had some work postponed from Q1 into Q2 and Q3. We have had some issues here, and the likelihood of these projects materializing in Q3 and Q4 is still unclear. In general, Norwa24 has very limited exposure to the project business. But in this unit, project business accounts for a fair part, and this is more cyclical and tied to the weak construction industry in Germany. We have made management changes in its company early Q3. A replacement process is underway. The positive thing in Germany is that when excluding this company, the other units have a nice margin increase, both in the quarter with a margin improvement of 90 basis points and 70 basis points in the first half of the year. And I'm also pleased to announce that the larger underperforming unit in 2023 has been turned around and have a very solid margin increase. Next one, Sweden. I'm once again very happy to see the development in Sweden with total growth of 18.4% in the quarter and 10.4% organic currency adjusted growth. So a strong performance in Sweden. The pickup we see in revenues and utilization rates does have a solid impact on our profitability. For the quarter, the margin is up 750 basis points, and for the first half year, the margin is up 570 basis points. Most of the improvements are organic, but inclusion of Contratech also play a role in the margin improvement. During the quarter we acquired Högtryckstjänst Syd, which we closed mid-May. This operation fits nicely with the other operations in the southern part of Sweden. The Danish operation continued to improve. Denmark had a revenue growth of 55.4% in the quarter and 34.4% year to date. Nordic Power Group contributes a lot to this growth despite it being only consolidated from the 21st of May. The organic growth in Denmark in the Danish operation was double-digit, both in Q2 and in the first half of the year. Profitability is up by 660 basis points for the quarter, and the majority of this increase is coming from Nordic Power Group. But there is also solid organic margin improvement in the Danish operation. Next one. We continue to grow and we have added more than 500 million NOC of revenues from Q2 2023 and close to 1.1 billion NOC from Q2 2022. So the target of 4.5 billion NOC for 2025 is within reach. Also regarding profitability, we see solid growth. Our EBITDA is up. to 376 million NOK on a 12-month rolling basis and up from 275 two years ago. Okay, I hand over to you, Stein, to go through the financials.

Thank you, Henrik. Before we go to the financial section, I would like to summarize the M&A activity so far this year. Acquisitions are a key component in our buy and build strategy. Almost all our transactions are done in bilateral deals where we seek out targets, introduce ourselves and engage in a dialogue. As we see on the right hand side of the slide, the pipeline is still solid and we believe we will achieve the revenue volumes required to reach our 2025 target of 4.5 billion of revenues. We have signed five deals with an aggregated revenue of 380 million this year in all Scandinavian markets. We are in advanced discussions with several German targets, and this may materialize during the second half of the year. But as we have stated earlier, we are in no hurry, and it is very important to maintain prudence in these acquisitions and secure the right capital allocation. The acquisition of Vitek has been reviewed by the Norwegian competition authorities, and they notified us that they will continue its review on August the 13th. Thus, it has not yet approved the acquisitions. Comments to the Norwegian Competition Authority will be submitted by Norva within 15 working days. Now on to the financials. Overall, we are pleased with the performance of most units during Q2. Revenues for the group are up by 17.3% and organic growth is up by 9.2% when adjusting for FX. And we see an adjusted EBITDA margin increase of 220 basis points for the quarter and 50 basis points for the first six months. On the cost side, we see most cost items increasing less than revenue. Personnel is up 18% versus the increase of revenues of 17.3. But we also see operational service expenses and personnel expenses as a percentage of revenues together to see if our production has had good efficiency. And here, these two elements give a 40% base point margin improvement for the quarter. Vehicle operating expenses are up by 12% in the quarter, but also contributing to the improved margin with 70 basis points. We have benefited from the reduced fuel prices and especially from the reduced taxes on fuel in Sweden. For Sweden, this contributes to 120 basis points on the EBITDA margin. For the other market, the impact is much smaller. For the group, this is 20 basis points on the margin. And other operating expenses is increasing by only 6%, contributing to a 90 basis points improvement. Combined, this results in a 270 basis points improved EBITDA. Depreciation is at the same level in relation to revenues this Q2 and last year's Q2. So the reported EBITDA also has a 270 basis points improvement. The adjusted EBIT A is 12.6 for the quarter, which is an improvement of 220 basis points. Net financial costs were 27 million in Q2 versus an income of 10 million last year. The swing here of 37 million is due to a currency gain of 30 million last year and a currency loss of 4 million this year. The increased interest cost is up only 6.1 million NOK. From 16.8 million last year to 22.7 million in the quarter. This gives us an earnings before taxes for the quarter of 79.4 million, up 2.1% from last year, where we had 77.8 million. The tax rate was 28%, but the tax rate is expected to be at the same level as the last year's going forward. Again, we can show a strong balance sheet. Our net debt of 1.6 billion at the end of the quarter representing a net interest bearing debt over adjusted EBITDA of 2.4 based on statutory numbers and 2.2 times on pro forma numbers. Goodwill of 2 billion and 9 million at the end of Q2 shows an increase due to the latest acquisitions, with impairment tests showing ample headroom, i.e. there is no imminent danger for write-downs. The lease liability of 993 million is related to right of use assets, which refers to financial leasing of vehicles and the property rentals, according to IFRS 16. The non-current loan of 811.7 million is primarily the bank loan. The right of use and property plan and equipment increased by 12.6% over the last 12 months, while our revenues on a 12-month basis have increased by 18.3%, indicating that we have improved our efficiency. And our investment of 137 million for the quarter, that includes both PPE and right of use, does not represent the level for the year. So far this year, we have taken on leases and bought equipment for 225 million, and we will see a reduced investment level in the second half of the year. Our investment in machinery and equipment should be around 8% in the long run. Over to our net debt structure. Most of our debt is related to IFRS leases that needs to be capitalized. These lease liabilities amounted to 993 million at the end of the quarter. Our total interest bearing net debt was 1,635,000,000 at the end of Q2, of which approximately 60% are capitalized IFRS leases. Leasing payments for the next 12 months amount to 266 million NOK. Depreciation of the leased assets is included in the total depreciation in the P&L. Net debt excluding lease liabilities amounted to 642 million at the end of the quarter. Of the 1.1 billion credit facility, 227 million was unutilized and available at the end of the quarter. This, combined with the cash flow from operations, gives us significant financing capacity for M&As. We have an offer in place from the banks for an increase of the financing facility from 1.1 billion to 1.85 billion, which also then includes two times one year extension options at similar terms as the current facility, the one that we established prior to the IPO in the fall of 2021. So that means that we should have funding secured until Q4 2028 once signed. Yes, our cash conversion is impacted by M&A this quarter. This quarter we have included Nordic Power Group, which has their high season in Q2, leading to a very significant build-up of accounts receivable at the end of Q2. This has to a large extent been paid by the end of July, but it does impact the working capital at the end of Q2. Our operating cash flow of 530 million last 12 months is up by 17% on the previous 12-month period, and with a cash conversion of 70%. This reduction towards last year is heavily impacted by the M&A done, and then particularly Nordic Power Group. At the end, just to recap the financial results, it's good growth in revenues, up 17.3% year on year. Margin is up 220 basis points in the quarter and 550 basis points for the first half year. We've had good M&A activity for the year, and there is a solid pipeline. There is a strong balance sheet that has enabled larger M&A deals over the last month, and there is still room to continue the growth. Handing over to you, Henrik.

Okay, thank you, Stein. Before I summarize and give some key takeaways, I want to underline that we are on track to deliver on our financial targets. 4.5 billion NOC in 2025 through organic growth and acquisitions, 14 to 15% EBITDA margin midterm, and we still have a good capital structure to support the journey. Next slide. Final slide before Q&A. Key takeaways from this presentation. We deliver on our M&A agenda. We come from a quarter with solid revenue growth of 17.3%, good organic growth of 9.2%, with a margin improvement of 220 basis points. In addition, we are uniquely positioned in an attractive growth market and show resilience in a tough economical climate. And... we are on track to deliver on our growth and profitability targets. Thank you. Now we open up for Q&A, but just give us a couple of seconds so we will change location to another room for the Q&As.